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SEBI approved various norms including side-pocketing in mutual funds and renaming the Institutional Trading Platform as Innovators Growth Platform

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On December 12, 2018, Ajay Tyagi, Chairman of Securities and Exchange Board of India (SEBI) approved on various norms taken in its board meeting in Mumbai.
This included allowance on separation of domestic fund with bad assets for mutual funds and ease of norms for start-ups.

SEBI approved various norms including side-pocketing in mutual funds and renaming the Institutional Trading Platform as Innovators Growth PlatformAbout Approval on Side-Pocketing for Mutual Funds:

  • The new facility, known as side pocketing, involves separation of distressed or illiquid assets from other healthier securities in a debt mutual fund portfolio.
  • This would allow insulation of the net value of the assets from the bad debts that might lessen the worth at the time of default.
  • Under this, fund houses will have the option for creating segregated portfolio, but approval of trustees would be necessary for activating such a portfolio.
  • If they don’t opt for side pocketing, they would have to write down stressed assets on a conservative basis.
  • This move would help protect interest of investors.

Approval for norms relaxing the start-up sector:
i. In order to boost the start-up sector, SEBI made the listing process easier and renamed the Institutional Trading Platform as Innovators Growth Platform.
ii. The relaxation norms are mainly aimed at e-commerce, data analytics, biotechnology and nanotechnology firms to raise funds through stock exchange listing.
iii. To get listed the start-ups should have:

  • 25 per cent of the pre-issue capital of the issuer company held, for at least 2 years, by qualified institutional buyers, family trusts with net worth of more than Rs 500 crore and category III foreign portfolio investors or
  • A pooled investment fund with minimum assets of $150 million or
  • An accredited investor with gross income of at least Rs.50 lakh annually with minimum liquid net worth of Rs. 5 crore or
  • A body corporate with net of Rs. 25 crores.

iv. Also, not more than 10% of the pre-issue capital may be held by Accredited Investors
v. Post-issue single holding can also exceed the current cap of 25 per cent.
vi. It also reduced the minimum application size for share offers to Rs 2 lakh, from Rs 10 lakh earlier.
vii. It has also brought down the minimum number of allottees to 50 from 200, and kept the minimum offer size at Rs 10 crore.

Approval on review on OFS mechnism:

  • SEBI board also approved a proposal to expand the offer-for-sale (OFS) mechanism to cover more listed companies wherein shareholders may want to sell their stake.
  • Companies having a market-cap of more than Rs.1,000 crore are eligible for OFS mechanism.

Approval on Clubbing of Investments of Foreign Portfolio Investors (FPI):

  • SEBI also approved the proposal of clubbing of investment limits for foreign portfolio investors on the basis of common ownership of more than 50 per cent of common control, excluding the case of regulated public retail funds.
  • This would bring unconnected FPIs, connected only on account of a large common investor, within the aggregate investment limit.
  • Although the move is not supported on the basis of same set of beneficial owners as per the Prevention of Money Laundering Act.  The move was based on the recommendations of a SEBI working group under Shri. Harun R Khan.

Other Approvals:
i. SEBI approved the Amendment in Regulation 29(4) of Takeover Regulations, 2011, to allow exception of disclosure requirement to Housing Finance Companies (HCF)s worth Rs. 500 crore and above, registered under National Housing Bank (NHB) and Non-Banking Financial Companies (NBFCs) during an acquisition or disposal.
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